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M c I n t i r e I n v e s t m e n t I n s t i t u t e
McIntire Investment Institute At the University of Virginia
Short Pitch: Salesforce.com, Inc.
(NYSE: CRM)
Prepared by Matt Robertson| October 27, 2011
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
• Company Overview • Stock Analysis • Thesis Points • Valuation • Risks • Recommendation • Questions
Outline
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Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
Saleforce.com Background
Company Overview
• Salesforce.com was founded in San Francisco, California in 1999 by Marc Benioff.
• The company allows software developers to create applications on its cloud by paying a subscription.
• Most well known for creating a SaaS Customer Relationship Management (CRM) platform. The platform allows users to build profiles and workflows that help manage their customers, sales, and operational data.
• Chatter is the firm’s version of a professional social network and is its most successful product. It allows sales teams to gather information about an organization, create profiles about themselves, and easily converse about meetings, deals, and strategies to counteract competitors.
• Over 90,000 users choose Salesforce.com.
M c I n t i r e I n v e s t m e n t I n s t i t u t e 4
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
Saleforce.com Background
Major Shareholders
1. Fidelity Management and Research Company, Inc. – 18,705,967 shares 2. Sands Capital Management, LLC. – 8,663,496 shares 3. Jennison Associates, LLC. – 6,948,628 shares 4. Vanguard Group, Inc. – 4,634,179 shares 5. State Street Corp. – 4,408,517 shares
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Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
Why Companies Care About CRM
• Developing close connections with customers can lead to larger profits.
• Many ways to monitor and track customers and their habits, which can be inefficient and timely.
• Salesforce.com allows users to collaborate with colleagues in a centralized format that lowers cost, increases efficiency, and allows more time to be spent on developing the best client-customer relationships.
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Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
Financial Performance
• Share Price: $132.53 • EPS: .21 • P/E Ratio: 649.49 • Revenue: $1,657,139,000 • Net Income: $64,474,000
• Long Term Debt: $498,025,000
• Debt/Equity Ratio: 1.42
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• Low Barriers to Entry
• Research and Development
• Rapid Growth and Highly Overvalued
• New Competition
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Thesis Points
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• No need for large quantities of infrastructure.
• Largest barriers are knowledge based.
• Very easy for hundreds of competitors to enter the market and disrupt the industry.
• Transmitting data from one cloud service to another will allow customers to price shop.
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Low Barriers to Entry
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• Critical in maintaining a competitive edge over rivals. • Per Salesforce.com’s 2011 10-K report:
– Marketing Expenses: $792 Million – R&D Expenses: $187 Million
• Ranking the firm as 599 of 664 technology sector companies.
• Integration problems that more emphasis on R&D could correct.
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Research and Development
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• Ranked number 8 on Forbes’s Top 25 Fastest Growing Tech Companies for 2011 and number 4 on CNN Money’s 2010 100 Fastest Growing Companies.
• P/E ratio of 649.49 is the highest in their industry.
• EPS is currently at .21, but that number is expected to decline.
• However net income is projected to decline and there has been substantial insider trading.
• Purchase of Heroku.
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Rapid Growth
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
M c I n t i r e I n v e s t m e n t I n s t i t u t e 11
Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A
Financial Performance P/E Ratio History
M c I n t i r e I n v e s t m e n t I n s t i t u t e 12
Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A
Financial Performance Projected Net Income
M c I n t i r e I n v e s t m e n t I n s t i t u t e 13
Company Overview Stock Analysis Thesis Points Catalysts Risks Valuation Recommendation Q&A
Financial Performance Insider Trading
M c I n t i r e I n v e s t m e n t I n s t i t u t e 14
Competition
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
M c I n t i r e I n v e s t m e n t I n s t i t u t e 15
Microsoft
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
• Offer their Software and own CRM service, Microsoft Dynamics CRM Online.
• 99.9% service level agreement.
• Designed like and functions similar to Microsoft Outlook.
• Costs $44 per user per month with these features included.
• Windows Azure offers many configurations.
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Microsoft
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
Projected Net Income
M c I n t i r e I n v e s t m e n t I n s t i t u t e 17
Oracle
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
• Release of new cloud software, Oracle Public Cloud.
• Salesforce.com locks users into their programs.
• Existing Oracle database can be transferred into their cloud.
• Oracle Social Network vs. Salesforce.com Chatter.
“You can do development and test on our cloud and go into production in your data center… and nothing changes.”
- Larry Ellison
• Purchase of RightNow Technologies
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Oracle
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
Projected Net Income
M c I n t i r e I n v e s t m e n t I n s t i t u t e 19
Oracle
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
Insider Trading
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Basic Earnings Per Share (2012 and 2013 are estimates)
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
Firm Month Year EPS YOY Growth Rate
CRM January 2010 .65 80.56
2011 .50 -23.08
2012 - 0.09 -
2013 .17 -
MSFT June 2010 2.13 30.67
2011 2.73 28.17
2012 2.80 2.42
2013 3.11 11.27
ORCL May 2010 1.22 10.91
2011 1.69 38.52
2012 1.94 14.56
2013 2.18 12.60
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Value Added Research
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
“I wasn’t very impressed.” - Mike Cunningham, Supplier Participant in Dreamforce, Silicon Valley
M c I n t i r e I n v e s t m e n t I n s t i t u t e 22
Risks
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
• Acquisition by another firm - Would alleviate risk - Provide necessary funds to revamp R&D - Spark new innovation in the industry
• Brand Loyalty - Developers fear switching from Salesforce.com
• Oracle Flops - OSN and new cloud turn out to be failures
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Recommendation
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
• New companies may cut into Salesforce.com’s growth by leveraging existing relationships with clients and developing more competitive strategies.
• In 2012, Oracle could begin capturing a large share of the market and converting current CRM users.
• Salesforce.com as a short is the best decision given their unmaintainable valuation multiples and the threat of new entering competitors. MII needs to engage in a short weighted at 1-1.5% of the portfolio before the release of Oracle’s new cloud service and social network in 2012.
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Questions?
Company Overview Stock Analysis Thesis Points Valuation Risks Recommendation Questions
